The centralized administrative system divorced the interest and credit policies from the real economic processes. The economic processes were both budgeted and credited with the proportions of the two centrally determined. In these circumstances and with the distorted cost and prices structure the interest rate did not count much as factor in the distribution of resources and the production growth speed. All monetary-credit and financial regulators systematically misinterpreted, the same true for the credit and interest proper the credit investments turned out inconsistent with the economic framework. This holds good both for the short term turnover capital investments and for the long term investment loans by the end of 1990. The overall credit investment in the material production sphere for the years 1981 to 1989 outstripped by 4.2 points the increase of the national income and by 3.2 points the increase of the domestic product as well.

For the whole period of totalitarianism and centralized planning the bank had been authorized to exercise the direct and administrative in its character control over all the financing of capital investments and turnover funds no matter where they came from - the enterprises own assets or borrowed such. With the overall state ownership domineering the concepts of assets and liabilities of economic entities used to be conventional only.

The turnover capital credits covered the constant indispensable needs of the enterprises. What is meant is the minimum capital amounts every normal economic entity in the market world needs to command to be able to work. The credits were thus invited to enter by means of the so called loan for stock share, also called credit to the normative at the end of 1990. The enterprises originally (years 50 -60s) used to need small amounts of turnover capital, purposefully lowered to allow the bank credit to enter into the capital turnover on a regular basis and thus ensure the everyday control. More recently (years 1985 - 1989) the same tendency was sustained among other things because the enterprises did not have enough assets - the result from the high revenue centralization norm in the budget. By the end of year 1990 with most industrial enterprises some 70 - 75 per cent of the minimum necessary turnover capital was provided by the so called stock-share loans. At that the enterprises were treated selectively by the bank and the attempts to use interest as credit supply and demand regulator were doomed to fail.

The normative loans increase is an annual average of 4.5 per cent for the years 1986 - 1989. Of the total 22,122 mln leva turnover capital loans by the end of year 1990 17,292 mln were of the normative and buying out kinds. In most cases these were loans to substitute for the insecured turnover assets of the enterprise necessary for its normal financial stability. The bank-enterprises credit relationships shifted on to commercial basis in early 1991 most enterprises had to meet the difficult conditions of paying market interests. The 1989 average interest rate for turnover capital credits was 5.38 per cent; 45 per cent was introduced in 1991 to become 52 per cent by the end of the year.

The investment loan obligations of the enterprises have been the product of the centralized planning system in their best part. The natural balances and relations allotted significant role, the systematically misinterpreted financial aspects of the investment policies and the high revenue centralization norm all prevented the enterprises from accruing their own assets. The inefficient production and the distorted prices also had their effect. The real investment returns were clear neither to the investors nor to the banks who had ratified the credit. The center setting limits on the capital investment allocations did not usually care about the available financial resources. There was only the formal connection between the investment intentions and the profit as ultimate source for servicing the credits and so it did not make a regulator criterion.

During years 1990 and 1991 worth special attention is another peculiarity determining the nature of the so called foreign currency credits of the enterprises which were owed at the time when the economic reform all started.

The communist system, even in its most pretentious periods did not give the directors of enterprises any rights to deal on their own with issues to do with the investment, crediting and hard currency areas in particular. The foreign currency credits were being accumulated during the years 1983 to 1987 when the center and the 'holding' organizations, the so called economic groupings decided everything.

On their closing in 1990 and 1991 these groupings (called companies by Decree #56) issued a document each to allocate in a haste the credit obligations among the enterprises. There are quite a few cases when enterprises were allocated foreign currency debts who had previously paid the groupings back in leva and had virtually serviced them.

Actually it is hard to explain what in reality has happened to the lev equivalent of the 10-billion foreign currency debt of the country. It was at the same time that the enterprises were transferring all their profits to their centralized 'holding' organizations (firms, groupings). Normally this money should have gone to service the credits, but the economic groupings have never been held responsible for that on their closing. The closing itself was enacted without any financial analysis. The long-term financial assets which were being distributed among the enterprises are in the same condition. The holdings were generous to spend hundreds of thousands of leva during years 1989 - 1990 - 1991 to establish all sorts of joint-stock companies (especially such abroad and banks in the country). And in the long run the enterprises were the ones to pay 55 - 60 per cent interest rates on credits that had been previously allocated to them.

Hundreds of thousands of leva were being stripped from the enterprises during the years 1987 - 1991 to build up the assets of commercial banks. It is already known where the enterprises invested financially - an Ordinance granted their shares to the Bank Consolidation Company.

The above considerations leave us with the impression that the best part of the indebtedness of the enterprises had been built up under the effects of factors external to their actual work. These conditions should have necessitated certain changes in the credit and interest policies to foster the transition to the market economy by positively adding some measures which were not undertaken anyway.

At the outset in January 1991 the base interest rate was declared at the level of 15 per cent, but not a few days later (February 7th) it was increased to 45 per cent to go up to 54 per cent by the end of the year. The enterprises were suffering this interest burden. Those who could rely on the guaranteed demand for their products transferred the expenses onto their prices and so enhanced the inflationary tendencies. The aggregate cash flow and the credit obligation allocation was further distorted by the requirement introduced at the same time the interests paid by the enterprises not to be considered profit tax deductible. During the whole of years 1991 and 1992 hardly any efforts were put in the coordination of the interest, credit and fiscal policies.

In the monetary field the activities of the BNB and the government did not go any further than maneuvering with the base interest rate. The overall effect was the financial instability of the enterprises with ever growing significant turnover indebtedness, no performing prospects and spending on paying wages and repaying the state.

The mutual indebtedness of the economic entities became so considerable that it made a prerequisite in the programs of all foreign consultants and was put forward as problem number one.

The serious assessment of the situation at the end of 1990 (had it been made) should have demonstrated that the considerable credit indebtedness of the enterprises is not loans proper indeed, but centrally allocated quasi-credits. And these quasi-credits should have been cleared of using the most appropriate method under the circumstances before moving on to commercial relationships between enterprises and banks. Advice had been given along these lines by the World Bank consultants, but it was mostly disregarded or actually led to partial and inconsistent measures to be sporadically taken in years 1991 and 1992.